Fishers and Others v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 March 2020 |
| Neutral Citation | [2020] UKUT 62 (TCC) |
| Date | 04 March 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 62 (TCC)
The Honourable Mrs Justice Andrews DBE, Judge Kevin Poole
Philip Baker QC and Rory Mullan, instructed by James Cowper LLP appeared for the appellants and Cross-Respondents
David Ewart QC, Oliver Conolly and Barbara Belgrano, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents and Cross-Appellants
Income tax – Anti avoidance – Transfer of assets abroad (TOAA) – ICTA 1988, s. 739 – Transfer of betting business by UK company to Gibraltar company – Whether TOAA code applies to shareholders where no purpose of avoiding income tax – Whether transfer can be imputed to shareholders as multiple quasi-transferors – Whether all trading profit of transferee company assessable – Whether motive defence available – Whether TOAA code breached EU law – Whether discovery validly made – Appeal allowed.
The Upper Tribunal (UT), overturned the decision of the FTT, finding that the transfer of assets abroad (TOAA) legislation at ICTA 1988, s. 739 (now ITA 2007, s. 720) did not apply but if it had, the motive defence under s. 741 (now ITA 2007, s. 736ff.), would have been available to the appellants. Appeals allowed.
This was an appeal and cross-appeal against the FTT decision of Fisher [2014] TC 03921 which concerned the sale and transfer of a telebetting business by a UK resident company, Stan James (Abingdon) Ltd (SJA) to a Gibraltar company, Stan James Gibraltar Ltd (SJG). The FTT held that the appellant taxpayers, Stephen and Anne Fisher and their son Peter, who were shareholders and, or, directors of both companies, were to be treated as “quasi-transferors” of the business so the TOAA anti-avoidance provisions applied to them and they were subject to the charge under s. 739. Also, because the purpose of the transfer had been the avoidance of betting duty this precluded the defence of “no tax avoidance motive” under s. 741.
HMRC also cross-appealed against the FTT decision that the discovery assessment was invalid.
The FTT had allowed appeals in relation to Anne Fisher on the basis that her Irish nationality meant her European law rights of establishment and to move capital were engaged and the TOAA charge restricted those rights without justification and was not proportionate. Applying a conforming interpretation to the UK legislation meant the scope of the motive defence was widened and could be applied in her case.
The issues before the UT were as follows:
- Could s. 739 apply where there was no avoidance of income tax?The UT held that the purpose of the transferor (both in relation to the transfer itself and to any associated operations) were only relevant and fully examined in the context of the motive defence in s. 741. Thus, the UT concluded that s. 739 could apply even where the taxpayer was not seeking to avoid income tax by making the relevant transfer.
- Is it possible to impute the transfer by SJA to any of the taxpayers?
The FTT had concluded that it was possible to treat the Fishers as “quasi-transferors” (a term used in IR Commrs v Pratt [1982] BTC 319) because as directors and shareholders they “procured” SJA to make a transfer.
The UT dismissed this argument. It found that the transfer of assets in this case was not made by an individual but by a company, SJA. Those assets, which were the assets of the business, and any income derived from them, belonged to the company, not to its directors or shareholders. None of the Fishers had a controlling interest in SJA and could not tell SJA what to do.
If the assets had been transferred in the UK, or stayed where they were, the income tax position of the shareholders and directors of SJA would have been the same. There was no connection between the transfer of the assets abroad, and their liability to income tax. The transfer was made by SJA and not by any of its individual shareholders or directors; there was no basis for treating any of them as the “real” transferors and SJA as merely an instrument by which they effected the transfer of the assets. The FTT had erred in treating acts by SJA's directors as “procuring” SJA to do something when in fact they were acts carried out for and on behalf of the company. It was not possible to impute the transfer to any of the taxpayers as “quasi-transferors”.
Thus, the UT concluded that the TOAA legislation was not engaged but even if it had been, the motive test would have been available to the appellants. The business was moved to Gibraltar to save the business. Therefore, to the extent betting duty avoidance was involved in the transactions, it was simply the means of achieving the main purpose of saving the business, for which main purpose the transactions were designed.
The appeals were allowed.
The UT agreed with the FTT that, if it was wrong and s. 739 applied, Anne Fisher would have been entitled to rely on art. 49 TFEU. However, unlike the FTT, the UT also found that Stephen Fisher, as her husband, would have been entitled to rely upon the adverse impact that any application of the TOAA provisions to him would have had on the exercise of Anne Fisher's freedom of establishment, so that he too would have been entitled to benefit from the conforming interpretation. However, Peter Fisher, a financially independent adult, could not have relied on this interpretation.
The UT also found in favour of HMRC's cross-appeal on the discovery assessment issue in principle.
This is a lengthy case which concerns primarily the application of the transfer of assets abroad anti-avoidance legislation contained in ICTA 1988, Pt. XVII, Ch. III (now ITA 2007, Pt. 13, Ch. 2).
The UT found that the FTT had erred in treating the Fishers as “quasi-transferors” of the business so the TOAA anti-avoidance provisions applied to them. To treat them as such was a “gloss on the statute which is nowhere to be found in the language used by the legislature”. Also, because the move to Gibraltar had been to save the business the motive test would have been available to the appellants.
[1] This is an appeal and cross-appeal from the decision of the First-tier Tribunal (“FTT”) (Judge Raghavan and Mrs Sadeque) of 14 August 2014 [2014] TC 03921 (“the Decision”) concerning the tax consequences of the sale and transfer in March 2000 of a telebetting business by a UK resident company called Stan James (Abingdon) Ltd (“SJA”) to a Gibraltar company named Stan James Gibraltar Ltd (“SJG”). The FTT found that the appellant taxpayers, Stephen and Anne Fisher and their son Peter, who were shareholders and/or directors of both companies, were to be treated as “quasi-transferors” of the business so that the provisions of the tax anti-avoidance code on transfer of assets abroad (“the TOAA code”) applied to them, and they were subject to charge under section 739 of the Income and Corporation Taxes Act 1988 (and its successor) on the profits made by SJG.
[2] The FTT also found that although the avoidance of corporation tax or other income tax was not a purpose of the transfer, and the transfer and any associated operations were bona fide commercial operations, as a matter of domestic law the taxpayers could not avail themselves of either limb of the so-called “motive” defence under section 741 because the transfer was designed for the main purpose of avoiding liability to pay betting duty. In the case of Anne Fisher, an Irish national, because the TOAA code restricted her rights of freedom of establishment, the legislation had to be interpreted so as to conform to EU law. This meant the references to “tax avoidance” in the legislation had to be interpreted as restricted to situations in which tax was avoided by artificial means. As that was not the case here, Mrs Fisher could avail herself of the motive defence and was not liable. However, as English nationals, her husband and son could not benefit from the narrower conforming interpretation.
[3] The FTT set out the background facts at paragraphs [16] to [95]1 of its decision and made its findings in relation to the decision to transfer the telebetting business to Gibraltar at paragraphs [334] to [370]. For the purposes of this appeal and cross-appeal the following summary will suffice.
[4] Stephen Fisher and his wife Anne are and were at all material times resident and ordinarily resident in the UK. Their son Peter ceased to be resident in the UK in 2004. Their daughter Dianne was non-resident at all material times.
[5] The Stan James betting business was built up over a number of years, and from 1988 onwards was run through SJA, whose sole directors and shareholders were the four members of the Fisher family. The business consisted, over time, of one or more betting shops in the UK, the taking of bets over the telephone (“telebetting”), and more recently, internet betting.
[6] Stephen Fisher dealt with the shops and administration and had overall responsibility for the company. He and Peter were responsible for the day-to-day running of the business and formulating future planning, and they provided the majority of input to decisions. Dianne worked on accounts administration for the telebetting side of the business. Anne Fisher had virtually nothing to do with the business from 1996 onwards. She played no active part in SJA's decision-making. She entrusted her responsibilities to her husband and son and was happy to go along with their decisions.
[7] Initially each betting shop took its own telebets, but in 1992 SJA centralised its telebetting operations. It subsequently developed its own call centre software. In 1994 Peter became solely responsible for the telebetting business, which was becoming increasingly important. In 1996, SJA bought a new building to expand this strand of the business. By 1999 telebetting accounted for a major part of SJA's business, and it had outgrown those premises and was...
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